The Announcement
India’s government has notified the Rs 10,000 crore Startup India Fund of Funds (FoF 2.0) to mobilise venture and growth capital for deep-tech startups, early growth-stage companies, and tech-driven manufacturing ventures. The fund will invest via SEBI-registered Alternative Investment Funds (AIFs) in the equity and equity-linked instruments of government-recognised startups.
How FoF 2.0 Works
FoF 2.0 operates as an “investor for investors” model, channelling capital through SEBI-registered AIFs rather than investing directly in startups. This structure allows the government to aggregate and allocate capital across the existing investment infrastructure, enabling AIF managers to select, monitor, and invest in startup portfolios.
Building on FoF 1.0
FoF 2.0 follows the earlier Fund of Funds for Startups (FFS 1.0), launched in 2016 under the Startup India programme. FoF 1.0 is managed by the Small Industries Development Bank of India under the Department for Promotion of Industry and Internal Trade and has supported over 1,370 startups. FoF 2.0 applies the same “investor for investors” approach while explicitly targeting deep-tech, early growth-stage, and tech-driven manufacturing segments.
Four Segments of Capital Allocation
FoF 2.0 is structured into four segments:
- Deep-tech
- Micro VCs backing early growth-stage startups
- Tech-driven manufacturing
- Sector-agnostic funds
These segments separate different risk profiles and business models. Deep-tech and tech-driven manufacturing are explicitly targeted, while micro VCs receive dedicated support for early growth-stage companies. The sector-agnostic segment allows for opportunities that do not fit into the other defined categories.
Operational Guidelines and Governance
The Department for Promotion of Industry and Internal Trade will issue detailed operational guidelines covering eligibility criteria, fund selection, monitoring, disbursal mechanisms, reporting requirements, and investment committee structure. A committee chaired by the Secretary of the department will oversee implementation and performance. The practical effect on startup financing will depend on how these guidelines define and interpret categories like “deep-tech” and “tech-driven manufacturing.”
Implications for India’s Startup Ecosystem
FoF 2.0’s Rs 10,000 crore allocation is designed to influence capital flows into deep-tech startups, early growth-stage companies via micro VCs, and tech-driven manufacturing ventures. The fund’s structure signals a policy focus on technology-intensive development pathways. The actual impact will depend on how the guidelines define eligibility criteria and how SEBI-registered AIFs interpret these segments when selecting startups for investment.
Source: Entrackr : Latest Posts